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Identifying the Effects of Firing Restrictions Through Size-Contingent Differences in Regulation

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  • Schivardi, Fabiano
  • Torrini, Roberto

Abstract

We study the effects of the more stringent employment protection legislation (EPL) that applies in Italy to firms with over 15 employees. We consider firms' propensity to grow when close to that threshold and changes in employment policies when they pass it. Using a comprehensive matched employer-employees dataset, we find that the probability of firms' growth is reduced by around 2 percentage points near the threshold. Using the stochastic transition matrix for firm size, we compute the long-run effects of EPL on the size distribution, finding that they are quantitatively modest. We also find that, contrary to the implications of more stringent firing restrictions, workers in firms just above the threshold have on average less stable employment relations than those just below it. We document that this is because firms above the threshold make greater use of flexible employment contracts, arguably to circumvent the stricter regulation on open-end contracts.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5303.

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Date of creation: Oct 2005
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Handle: RePEc:cpr:ceprdp:5303

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Keywords: employment policies; firing costs; firm size distribution; matched data;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. It is time to move away from policy witchcraft and into an era where evidence is taken seriously
    by brumley in British Politics and Policy at LSE on 2012-05-28 13:40:02
  2. It is time to move away from policy witchcraft and into an era where evidence is taken seriously
    by Blog Admin in Impact of Social Sciences on 2012-05-29 10:00:44
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